Willingness to Pay for Air Quality: The Case of Outdoor Exercise

Farber, Stephen, Rambaldi, Alicia, Contemporary Policy Issues

I. INTRODUCTION

The U.S. Environmental Protection Agency (EPA) recently reviewed the National Ambient Air Quality Standards (NAAQS) for ozone. The 1970 Clean Air Act requires setting national primary standards for ambient air quality at levels to protect the public, with an adequate margin of safety. In 1979, the EPA set the current one-hour primary standard for ozone at 12 parts per hundred million (pphm). Since 1986, the EPA has considered reducing this acute standard from 12 to 10 pphm or replacing it with a new six-to-eight hour standard while adding a long-term standard to address chronic effects. This reconsideration was due to emerging evidence of potential acute health effects at concentrations lower than 12 pphm, especially among two sensitive populations: those with preexisting respiratory disease such as asthma, and heavy exercisers. (The Federal Register, August 10, 1992, provides an excellent summary of these key health studies.) The EPA recently issued a proposed decision rule that would maintain the current acute standard and would not add a chronic standard (Federal Register, August 10, 1992). However, the decision did note that EPA intended to assess rapidly the emerging information on six-to-eight hour and chronic exposures.

While the 1970 Clean Air Act ostensibly requires basing the NAAQS solely on health effects, policymakers undoubtedly recognize that higher standards are more costly. Otherwise, the EPA would be willing to reduce the acute standards and allow an even larger margin of safety, especially for at-risk populations. This cost consciousness is evident in' Executive Order 12291 requiring regulatory impact analyses for major rules and in the myriad of studies quantifying environmental regulation's economic costs (U.S. Congressional Budget Office, 1985). An accepted principle is that tighter standards involve increasing costs. For example, the Baltimore N|O.sub.2~ (an ozone precursor) study estimated the cost of attaining a 500|micron~/|m.sup.3~ one-hour standard at $0.066 million in annual least cost controls, a 375|micron~/|m.sup.3~ standard $0.367 million, and a 250|micron~/|m.sup.3~ standard $1.663 million (Krupnick, 1986).

One also should consider the benefits associated with environmental improvements. A strict interpretation of the Clean Air Act requires estimating only physical health benefits, but economists increasingly are quantifying monetary benefits. Two factors motivate this development: (i) emerging concerns over environmental control costs, and (ii) attempts to assure that standards and enforcement are economically efficient in the narrow sense that the costs of changes do not exceed benefits. Related goods demand studies estimate the implied valuation of amenities from the relation between air quality and wage rates or property values (Meyer and Leone, 1977; Murdock and Thayer, 1988; Harrison and Rubinfeld, 1978), or from the relation between air quality and health care demand (Dickie and Gerking, 1991). For example, Dickie and Gerking estimate that in the Los Angeles basin, the consumer surplus gain from a one-day ozone reduction from 30 pphm to 12 pphm is $4.06 per person per day, with lesser values for smaller reductions. Damage function studies establish relations between ambient doses and health impact responses and then place costs on these impacts (Seskin, 1979; Portney and Mullahy, 1986; Brajer et al., 1991; Ostro and Liu, 1990; Cropper, 1981). The contingent valuation (CV) method directly asks survey respondents to place a value on ambient qualities (Brookshire et al., 1976; Loehman and De, 1982). For example, Schulze et al. (1984) estimate a willingness to pay (WTP) of $7.75 per day to reduce peak one-hour ozone concentrations from 20 to 12 pphm in the Los Angeles basin.

Technically, two different ambient quality benefits issues exist: (i) the benefits of changing a standard, and (ii) the benefits of complying with existing standards. For example, lowering one-hour ozone standards from 12 to 10 pphm would carry benefits. …

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